“The Stock Market is a device for transforming money from the impatient to the patient”- Warren Buffet.
What is Stock?
Stock is an investment option offering to the public to be part of the ownership of a company or corporations.
Often called “Share” if a company’s stock price increases, automatically investors get profit while selling their share either long term or short terms.
Investing in stocks is a major decision you’re going to make in your life to build a sustainable personal finance future. Out of many investing options, investing in equity or shares is one of the most powerful ways to build your wealth and diversify your income portfolio to reduce future uncertainty.
If you already know how to invest in gold, similar things you need to follow here, but here crucial facts are how to choose a good and stable equity/companies share which always focus on growing your invested amount. Out of many investment options, investing in equity has many benefits. Let’s see;
- Offers long term financial securities and helps to create long lasting wealth creations.
- Offers higher liquidity than other forms of assets such as gold, real estate and government bonds.
- Easy to set up and investors can easily make a transaction like additional investments, sell or buy stocks, and monitor the current market even with their mobile or laptops.
- Shareholders are very fortunate to earn share dividends from their respective equity shares.
- A great example for liquidity asset which we can convert to cash very easily.
- Great way to earn money in the short term. Investors earn money through short term investment in stock.
How to Invest in Stock?
If you wish to start your trading journey in stock or shares or purchasing the share in a public or private listed company, there are guidelines and processes you need to follow. There are multiple things you need to adhere if you are completely a beginner or want to just diversify your income to the stock market. We came up with 8 steps to understand much clearly about stock and how to make it so?
1. Set Proper Financial Goal
Everything starts with why? You already made a phenomenal personal finance decision to invest in stock. Do not just invest just because your friends invested or fall behind false news such as a person became an overnight millionaire after watching videos on YouTube.
Investment always needs proper financial goals, in the same way investing in stock needs the same logic, it demands why you need to invest. Determine yourself what your investment objectives are, such as whether you want to make long term profit, diversifying your incomes, reducing the tax burdens or escaping from inflation. These objectives will make you decide how to invest wisely in the stock market.
Ex: Buying stock for the long term creates wealth and in the same way making intraday stocks creates profits.
2. Make Some Basic Research about Stock
According to Benjamin Franklin, “An Investment in Knowledge pays the best interest”.
Keep your time to do basic research and study about the stock which one you are going to purchase. Not every stock will make you profitable or stocks having low annual sales or profit is not a good idea to buy. Make some monitor how it performs in the market, what their profits from the last few years are, including P/E Ratio, Dividend Yield, and Sales.
Before wishing to purchase stocks 2 primary approaches investors need to know, Fundamental analysis and Technical analysis. Fundamental Analysis focuses on the long term business model, company financial statements profit and loss, balance sheet and cashflow statement), and financial ratios (P/E ratio, D/E ratio, ROE and EPS). Likewise, Technical Study related short term covers the concept of chart study, Relative Strength Index and Moving Averages.
3. Choose Appropriate Brokerage Firm
Choosing valid and appropriate stock brokerage firms is one of the most crucial things to an investor, especially a newer one who wishes to open a demat account. Not every stock broker will fit your requirements and tend to charge more brokerages while you sell shares.
When I started my early investment in stock I made this mistake. Without much knowledge about brokerage, I bought shares in one of the firms, which usually included high charges. So, we insist you do not fall into the trap of scamming brokerages, and even today there are plenty of firms that offer free brokerages and services to their clients, just go through it.
Today’s market is filled with multiple brokerage firms and options. It helps us to make choices more wisely, also helps us to compare how they work and how much they charge. Always opt brokerage companies that have high reputations, zero brokerages, easy to operate and more flexible transactions.
4. Add Fund to Your Demat Account
Adding sufficient amounts to your newly created demat account is the starting point of your stock transactions. Depositing or transferring money from your Saving Bank A/C to a newly created Demat account is not a big task, it is solely based on which share or equity you want to purchase and how much quantity.
Transferring money to demat accounts includes multiple ways, investors can choose payment gateways like NEFT, RTGs or IMPS, Cheque or Demand Draft, UPI transaction or other major online transactions. Transferring money to your demat account is not a big task, but all you need to know is how much you want to invest and if you wish to keep more money in your demat account you can.
5. Develop an Investment Plan
An investment plan is simply the process of what stock or funds you need to buy. After making detailed research about stock/share (including financial statements, marketing and company status), investors decide how much to invest. If a company has a solid background you can buy even more quantities of shares, but do not purchase tiny market value shares which is not a good idea for your wealth creations.
Purchasing stock is a bit easy once you have done your research. After adding sufficient amounts to your demat account, according to your budget you can decide how much quantity of share purchase. If you have a high budget we recommend you to buy bulk quantities like 500 or 1000 shares, which help you to create high wealth and offer a huge return along with a good annual dividend return.
Not every time share prices are a great thing to buy, it is always a great idea to buy shares while undervalued. If you are long term investors it is a better idea to buy during an IPO or end of the bear market.
6. Place Your Order
Through the use of brokerage firms or online platforms investors place their order to buy selected stocks which they already decide to buy. But there are some things investors need to keep in their mind, if you wish to buy for the long term choose an order like the market or wish to make intra-day, choose limit orders.
The process is very simple: open your demat account, select the share you want to buy and type the quantity, choose buy option (either market or limit), in some cases stock exchange is mandatory. After clicking place your orders, automatically your purchase share is placed in respective stock exchanges. Thereafter through demat account you can monitor it, if you get profit or wish to sell, sell at any time.
7. Monitor Your Share
After doing everything investors need to regularly monitor and manage their shares and stocks. Open the respective app where you opened your demat account and log in through user id and password. According to market fluctuations, inflation and international economic movements domestic share prices fall and rise.
With my little knowledge I will always recommend to every new investor to keep your investment grow in the stock market, do not rush to sell the equity when the market rises. Stocks are a fantastic way to create wealth but it is always done only if you have patience and discipline to allow to grow its value. It is true long term investment strategies always expect more years to make the most valuable asset to you.
So, after discussing everything about the process of stock or share, we are going to conclude this article in order to quote world famous investor Warrant Buffect, “Be fearful when others are greedy, and greedy only when others are fearful”.
